Erika Hall on expanding the pie

According to Erika Hall, assistant professor of organization & management, there are three important metrics to know before entering into negotiations: the reservation price, target price, and best alternative to a negotiated agreement price, or BATNA. The reservation price is the seller’s bottom line, she explains. “The target is the seller’s stretch or aspirational point, and the BATNA is any other offer or anything else that you might do if this negotiated agreement doesn’t go through.”

A negotiation is considered successful “if you’re anywhere above your reservation price, which is determined by your BATNA, plus or minus any idiosyncratic factors that you might have.”

Idiosyncratic factors are non-monetary conditions, such as a guarantee that employees will keep their jobs. These factors add value and prevent the negotiation from becoming a zero-sum process by expanding the pie instead of just splitting it, she says.

Hall illustrates with a hypothetical example of a company she wants to sell for no less than $1 million. Two people want to purchase the company. The first person has offered $1 million and has agreed to keep all her employees. This job guarantee is a non-monetary factor that for negotiation purposes she values at, say, $100,000. To match this offer, the second person has to offer at least $1.1 million.

“You should never take anything lower than your reservation price,” she adds. “It doesn’t make sense to accept something that’s worse than what you currently have.”